By: 永久浪客/Forever Vagabond
Reuters published a news article on Sunday (30 Oct) saying that more than US$12 billion of Singapore companies’ bonds would be due in the next 18 months or so (‘Singapore Inc faces $12 billion debt scramble‘). Over a quarter are believed to be from sectors facing structural headwinds.
“That could trigger more blood-letting in a market that has already seen some high-profile corporate defaults, such as oil services firm Swiber Holdings, which hit the skids in July and went into judicial management this month,” Reuters said.
A number of bond issuing companies are also “trying to renegotiate the terms of their credit to stay afloat”.
Reuters also highlighted that many of such corporate bonds are bought up by clients of private banking. In 2014, private banks accounted for almost half of investments into Singapore dollar corporate debt, MAS reported last year.
Many of these clients, of course, belong to the upper class in Singapore, who can afford to fork out at least $250,000 per bond purchase. One of the bondholders, for example, is a millionaire by the name of Mr Tan, who bought more than S$8 million worth of Rickmers Maritime’s bonds.
Their participation has helped encourage smaller bond issues that are not assessed by credit rating agencies and yet are targeted at private wealth investors, analysts said. “Their bond issues are also mostly unrated, so the layer of scrutiny provided by rating agencies is missing. Many of these deals were mispriced: they priced like investment grade even though they had high-yield profiles,” said an analyst at Deutsche Bank.
In total. some S$53 billion worth of corporate bonds are believed to be outstanding in the market, said Reuters.
Non-performing loans have also risen at all three local banks in the latest quarterly results, reflecting a decline in loan quality across sectors. As such, it is unlikely that the banks would want to help in the refinancing of those bonds which are due soon, especially when the companies are unable to redeem them like in Swiber’s case.
“In the absence of further bank support, refinancing this debt may prove difficult, potentially leading to more defaults over the next year,” said a banker from UBS Wealth Management.
In desperation, some of the companies are asking their bondholders to cut them some slack. Ezra Holdings, Rickmers Maritime, Otto Marine and Marco Polo Marine are just some of the companies that sought bondholder consent recently to loosen the conditions, or covenants, attached to their loans.
“But the question is whether loosening covenants will be adequate to give these companies the lifeline that they need,” said Kevin Wong, a lawyer from law firm Linklaters.
Government to come and rescue?
Meanwhile, it was reported that the Government is looking into the need for measures to help the struggling marine and offshore engineering sector. This was disclosed by Minister of Trade and Industry S. Iswaran yesterday (‘Singapore Government considering need for measures to help struggling marine and offshore sector: Iswaran‘);
“The Government is studying, in consultation with the marine and offshore engineering industry and financial institutions, the need for measures for the sector,” Mr Iswaran said.
But he did not elaborate what these measures might be, but noted that companies can tap on measures that are already in place, such as the SME Working Capital Loan that was introduced as part of the Budget this year to help small and medium-sized businesses deal with cash flow concerns and financing needs.
He added that the marine and offshore engineering sector is an important part of the Singapore’s economy.